Tensions between the US and China have risen in recent weeks. The US economy has declined in response, although some observers say it has also helped drive the bitcoin (BTC) cost lower to just under USD 12,000.
While the further deterioration of US-China relations could benefit Bitcoin, figures from the crypto-industry told Cryptonews.com that sanctions against China could potentially lead to the use of BTC as a hedge, while the development of a digital yuan could push the US to develop a digital dollar that could help popularize decentralized crypto-currencies.
Nonetheless, analysts seem to claim that Bitcoin would benefit the most from the continued economic crisis. As well as the falling US dollar. In comparison, tensions between the US and China would likely be a symptom – and catalyst – of broader economic problems.
The price of bitcoin has been increasing since July 25. When it was around USD 9,550, after moving sideways for about two months. It has since risen close to USD 12,000, during a period when Donald Trump has threatened to ban TikTok, and when both the US and China have ordered their respective consulates to be closed down.
These tensions have been a factor for some commentators in the recent rally. Even though they were not the main item. Roger Huang, a cryptoasset analyst, and blogger holds that view.
“I think it’s a factor,” he told Cryptonews.com. “But most of it is a flight away from the USD, which is weakening in value.”
Huang said the major factor in the recent rise of bitcoin has been American economic fragility, a result of which heightened tensions between the US and China. “To the extent that the USD is weakened because of the overhang of US-China trade relations, I think it also has a lot to do with monetary expansion, the United States and COVID-19.”
It’s possible that things between the US and China will get worse before they get better, particularly at the White House with Donald Trump. While essentially pressuring ByteDance to sell TikTok to Microsoft (in the U.S., Canada, Australia, and New Zealand), the U.S. has recently sanctioned Carrie Lam, Chief Executive of Hong Kong, for carrying out Chinese “policies of suppression.”
According to Arcane Crypto ‘s head of analysis, Bendik Norheim Schei, a ramping up of tensions could raise bitcoin.
“Increased tension between the US and China can lead to increased demand for bitcoin,” he told Cryptonews.com. “If the US imposes sanctions, which they often do, it is likely that some will look to bitcoin as a workaround.”
Norheim Schei noted that considering that the US Dollar is dominant in foreign trade, the US is in a unique position to sanction countries. “But they lose control with BTC and other alternatives.”
A full-blown war on the economy would lead to economic instability. This may be good for Bitcoin insofar as some confusion weakens the US dollar. But it is still not agreed about just how secure Bitcoin is as a safe haven as possible.
“On the one hand, there are those looking to bitcoin as a hedge, and both bitcoin and gold have been doing well recently,” said Norheim Schei.
“On the other hand, bitcoin might still be more in a ‘risk on’ category than a macro hedge. Currently benefiting from easy monetary policy, but potentially suffering from global economic instability.”
Digital fiat and Bitcoin mining
Rising trade tensions between the US and China may have a range of potential consequences. Including simply increasing demand for BTC. Some of these may be a further de-concentration of Bitcoin mining away from China. Which still accounts for as much as 65 percent of the hash power of Bitcoins, according to some estimations.
Commenting on the current mining environment, BitOoda, a digital finance consultancy. Indicated that poor relationships between the US and China. Potentially including sanctions and capital flight (from China) — could lead to a reduction in China’s market share.
“We recently assessed that about 50% of global mining power capacity is likely in China”. A New York-based company spokesman said. “We commend our colleagues and partners who are building a strong Bitcoin mining capacity in North America. And look forward to helping drive the further advancement of this critical aspect of the Bitcoin ecosystem.”
Another big effect of the tensions may be increased political and monetary nationalism. That could be either good or bad for Bitcoin, according to Roger Huang.
“Growing digital nationalism might creep in, legislators might want to ‘protect the US dollar’,” he said. “To the extent that a ‘US dollar’ and digital dollar nationalism/chartalism take hold. That could result in strong words and perhaps legislation that scares off US-based crypto companies.”
Fortunately, Huang suggested the worst-case scenario would be this. “But if you’re based in the US, you ‘re probably already trying to build something. That’s cozy up to the system to some extent (for example, Coinbase). So it’ll be minimal unless something big happens.”
Monetary nationalism also means creating a digital dollar and digital yuan which might compete with each other.
“China is already going pretty full-steam ahead on DCEP [digital currency electronic payment] or the digital yuan,” Huang said. “[Tension] might increase China’s attempts to internationalize the RMB, but that’s been something that’s been happening, digital currency or not.”
Again, it is debatable whether this would benefit BTC since, in the decentralized sense, neither is likely to be cryptocurrencies. But if the emergence of digital dollars helps popularize the concept of cryptocurrencies. And if the USD experiences significant inflation — it could drive more people to Bitcoin.